Wilma Burdis: Can you guys talk about some of the competitors at the small end of the PRT market and just talk about the sourcing of those small PRT deals as well, please?
Christopher Littlefield: We certainly over the last couple years have seen a lot of new entrants into the PRT market. I think what distinguishes us and gives us competitive advantage is the fact that we know the defined benefit business extremely well. We’ve been involved in it. We know it. We provide consulting services on it. And as a result, when our customers look for solutions to defuse that liability, they talk to us and we’re able to provide them a solution that allows them to secure a good outcome for them. So if we think about our overall business and the type of business we get, we get about 20% in the first quarter, about 20% of the business came from existing customers, existing customers of Principal. And so, we just play in a different part of the market.
We also, as we talked about in the fourth quarter, have very strong onboarding capabilities that lets us take advantage of times when the PRT market is very favorable because onboarding tends to be a little bit of the pipeline – the thing that can close the pipeline for others. So we’re used to doing lots of different contracts, which also gives us a diversity of the risks and then able to source a lot of them from existing customers of Principal, which, again, really believe gives us a competitive advantage in the PRT space.
Operator: The next question is coming from Tom Gallagher of Evercore ISI.
Thomas Gallager: On another earnings call this morning, they mentioned that group life pricing is the widest I think they’ve ever seen it, which sounded a bit extreme. And they were suggesting that they’re seeing some aggressive price competition and they lost some business. Just curious what you’re seeing specifically in group life. I know your results were pretty good this quarter there from an underwriting perspective. But would you share that view? And if so, how are you responding to it?
Amy Friedrich: I’ll give you my perspective on that. Keep in mind that our portfolio is going to be squarely in that small to midsize marketplace. So when we work with smaller or midsize employers, the things that we typically have to do in terms of the maximums we put in, the types of coverage they want maybe on some of their executive populations, the types of standards and what we will do in terms of what is underwritten as a group. We tend to stay closer to sort of a fundamental smaller box. So we tend to have amounts that are more standard, coverages that are a bit more standard. And we don’t have to do as many things as we look at getting coverage out there for either some of those kind of executive type populations. And so, what I would say is, yes, I understand the comment in terms of the competitiveness, but given Principal’s nearly sole focus in the small to midsize marketplace, we don’t have to compete on that.
We don’t have to offer three and four and five year rate guarantees. We offer single, sometimes two year rate guarantees. We don’t tend to have to compete on some of the maximums. And we don’t have to tend to extend beyond our underwriting parameters consistently. So I feel really good about the marketplace we’re in. We are seeing rational competition for group life in the marketplace we’re in. We rarely write group life alone. We tend to write it with a bundle meeting the needs of the full employer. So we don’t have to get into that competition just based on a single product. It’s a bundle. We’re in a small market, and it’s pretty rational in that space.
Thomas Gallager: So it sounds like that’s really in the larger end of the market. Then it’s not filtering down to small to mid. Is that fair?
Amy Friedrich: I have not seen it filter down. Correct.
Thomas Gallager: Dan, for my follow-up, just I guess Joel asked a question earlier on the fee proportion that’s non-asset based. And Chris, I think you said it was 20%. Just curious, for that per participant price business, what has the growth rate actually been? Is this a fee pool that’s growing or shrinking and by how much?
Daniel Houston: Yeah, Tom, I would say that it stayed relatively stable in that, call it, anywhere between 17% to 20%. So we’re not seeing a big increase. The big increase happened when we integrated the IRT block, which tended to be larger customer, but we were a little bit more steady state now that we’re five years beyond that acquisition. So I would say it’s staying relatively constant.
Thomas Gallager: And relatively constant, but is it actually growing? Like, is that having – does that look different or very similar to the overall blocks from a net growth or shrinkage perspective organically?
Daniel Houston: I think it looks pretty similar to the overall block.
Operator: The next question is coming from Jimmy Bhullar of J.P. Morgan.
Jimmy Bhullar: Most of my questions were answered, but maybe on individual life. To what extent were the weak margins this quarter an aberration or seasonality driven versus indicative of the earning power of that business?
Amy Friedrich: Yeah, I’m happy to answer that. I see it more as a one-off, more as an aberration, as you’re saying, than indicative. We continue to see some seasonality with the business. We build a bit of that seasonality expectation in, especially for kind of that first quarter claim. What I would say is we do expect 2024 earnings to be higher than 2023, and we think the margin results, as we communicated, and outlook expectations are going to be just below that lower end of that long-term guidance range. So we’re seeing more of an adjusted margin expectation to be in that 13% to 15% range for the bulk of the year for life.
Jimmy Bhullar: Dan, on the DOL rules, it seems like there was a possibility that it could have been negative for you guys, but the carve out for employers not being considered fiduciaries seemed like somewhat of a positive. I don’t know if you agree with that or not, but then any other things within the rule that are potentially positive or negative for Principal based on your initial assessment?
Daniel Houston: You’re exactly right. One of our primary concerns was our ability to, in the normal course of working with plan participants, providing them with education and guidance, and then it wouldn’t fall underneath the definition of the fiduciary rule. Because if you think about it, so many of those plan participants, in particular the lower income, smaller account balances, they don’t have a financial advisor. They are looking for us to help them and guide them. in the right direction. And a lot of these products that are available were chosen from the employer, and so defaulting to a target date option effectively can really help out a great deal. Before, we were even having some limitations on being able to provide guidance on whether or not to take out, or providing insights on loans and hardship withdrawal.
